Chodiev & Ors v Stein [2016] EWHC 1210 (Comm)

Case No Folio 2014-1242[2016] EWHC 1210 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 16 May 2016
Before
MR JUSTICE LEGGATT
Between
Patokh ChodievClaimantsAlexander MachkevitchClaimantAlijan IbragimovClaimantKirill SteinDefendant
Ewan McQuater QC, Caley Wright (instructed by Hogan Lovells LLP) for ClaimantsDaniel Oudkerk QC, Robert Weekes (instructed by Eversheds LLP) for DefendantHearing Hearing dates: 16 May 2016
Judgment
[1]On this application the defendant, Mr Stein, seeks an order under CPR31.22(2) restricting the use of documents disclosed in these proceedings, including documents read to and by the court and which were referred to at an earlier hearing held in public.[2]The proceedings have by now a somewhat tangled history which I shall seek to summarise as shortly as I can. The three claimants are wealthy individuals who, amongst their business activities, control a group of minerals and mining companies based in Kazakhstan. The defendant, Mr Stein, is a US citizen and New York qualified lawyer who works predominantly as a financial advisor and who assisted the claimants in the past in relation to the raising of finance. The defendant did so on a commission basis; and in proceedings which were brought in this court in March 2012 he claimed that he was entitled to a very substantial fee as a result of assistance given to the claimants in relation to an initial public offering of shares in companies which they owned.[3]The claimants disputed that they had made any agreement to pay such a fee and the proceedings were hard fought. They came to trial in early 2014 and in, a judgment given on 16 April 2014, Mr Justice Burton decided the case in favour of the defendant, awarding him damages in a total sum of US$18.4 million. At a subsequent hearing in October 2014, a further award of interest in an amount in excess of US$10 million was also made in favour of the defendant.[4]Shortly after the trial in that action had ended, the claimants began to take steps to seek to obtain evidence with the aim of showing that in his testimony at the trial Mr Stein had lied about certain matters, in particular as to his relationship with a company called Aurdeley Enterprises Ltd. That is a company incorporated in the British Virgin Islands, whose corporate affairs are handled by a Cypriot corporate services provider called Abacus Ltd.[5]Unknown to Mr Stein, the claimants made an application to the court in Cyprus, initially ex parte, for an order based on the Norwich Pharmacal principle requiring Abacus to disclose documents in its possession which would demonstrate the nature of the relationship between Mr Stein and Aurdeley.[6]There were proceedings in Cyprus which ultimately resulted in an order requiring Abacus to give such disclosure, which it did on 3 October 2014. Armed with those documents, the claimants then applied for a stay of the judgment which the court had given in Mr Stein's favour. They also, on 14 October 2014, issued new proceedings in which they sought to have the judgment in favour of Mr Stein set aside on the ground that it had been obtained by fraud. That fraud was said to consist in the allegedly dishonest evidence which Mr Stein was said to have given about his relationship with Aurdeley.[7]Mr Stein applied to strike out the claim made against him in the new proceedings or for summary judgment to dismiss that claim. His application came before Mr Justice Burton in April 2015. That hearing took place in public and at the hearing the claimants relied on documents which they had obtained from Abacus in Cyprus to argue that Mr Stein had given untruthful evidence and that this provided a basis for setting aside the judgment given in his favour in the original proceedings.[8]On 20 May 2015 Mr Justice Burton handed down a judgment in which he granted summary judgment to Mr Stein and dismissed the second claim made against him. In that judgment Mr Justice Burton accepted that the claimants had shown an arguable case that Mr Stein had lied in his testimony in the original action about the nature of his relationship with Aurdeley. Mr Justice Burton found, however, that, even assuming for the sake of argument that Mr Stein had lied about that matter, it had not affected the outcome of the earlier proceedings and accordingly any such lies had had no causative effect. Mr Justice Burton further held that in any event the evidence on which the claimants were relying was evidence which they could, with reasonable diligence, have obtained in the course and at the time of the earlier proceedings, and that it was too late to introduce such evidence. Accordingly, the second action was dismissed. The claimants sought permission to appeal to the Court of Appeal, but such permission was refused.[9]Since then there have been further proceedings in the Cyprus court in which Abacus has been seeking an order for the return of the documents which it was required to disclose. In June 2015 Abacus applied for and was granted, an interim injunction prohibiting the claimants from using any of the documents which had been disclosed to them by Abacus. More recently on 28 March 2016, following a further contested hearing, that interim injunction has been discharged. The proceedings in Cyprus are, however, still continuing and there have, I understand, been listed for trial the questions of whether the relief granted to the claimants under the Norwich Pharmacal principle for disclosure of documents should be made perpetual and whether the claim made by Abacus for return of the documents disclosed should be granted.[10]I should also mention that there are proceedings taking place in New York which were commenced on 3 December 2014 by two companies controlled by the first claimant. In those proceedings, which are brought against both Mr Stein and Aurdeley, it is alleged that negligent advice was given with the result that the companies have suffered loss. In the context of that claim, an allegation has been made that Aurdeley is an alter ego of Mr Stein. Jurisdiction has been challenged in those proceedings and initially an order was made dismissing the claims in March 2015 on the ground that the New York court lacked jurisdiction. However, on 26 April 2016 an appeal against that decision was allowed. There is a further appeal from that decision pending, but the current position is that the New York court has held that it does have jurisdiction and so those proceedings are still ongoing.[11]The order which Mr Stein seeks on this application as expressed in the draft order now before the court is that the documents which were obtained from Abacus in Cyprus:
"shall not be used for purposes other than these proceedings by reason of the fact that some of those documents have been or might have been read to or by the court, or referred to at a hearing in public."
[12]Mr Oudkerk QC, who represents Mr Stein, emphasised that the order sought is a limited and narrow form of order. In particular he stressed that Mr Stein is not asking the court to make any order preventing the use of the documents for purposes other than these proceedings: all that he is doing is seeking to negate the consequence that would otherwise arise from the fact that the documents have been referred to at a public hearing.[13]On behalf of the claimants, Mr McQuater QC took an initial objection that the court does not have power to make the order sought. That argument was based on the structure and wording of CPR31.22. CPR31.22 states: "(1) A party to whom a document has been disclosed may use the document only for the purpose of the proceedings in which it is disclosed, except where –(a) the document has been read to or by the court, or referred to, at a hearing which has been held in public;(b) the court gives permission; or(c) the party who disclosed the document and the person to whom the document belongs agree. (2) The court may make an order restricting or prohibiting the use of a document which has been disclosed, even where the document has been read to or by the court, or referred to, at a hearing which has been held in public. (3) An application for such an order may be made –(d) by a party; or(e) by any person to whom the document belongs.” (2) The court may make an order restricting or prohibiting the use of a document which has been disclosed, even where the document has been read to or by the court, or referred to, at a hearing which has been held in public. (3) An application for such an order may be made –[14]Mr McQuater argued that the evident purpose of paragraph (2) is to allow the court to reimpose a restriction on a party to whom a document has been disclosed, even if that restriction would otherwise have been removed pursuant to paragraph (1)(a) by reason of the document having been read to or by the court, or referred to, at a public hearing. He also noted that neither he nor as far as I have been shown counsel for the defendant has been able to find any authority in which the party which has disclosed a document has sought an order restricting the use of the document even where it had been referred to at a public hearing. In addition, Mr McQuater pointed out a dictum at paragraph 5 of the judgment of the Court of Appeal in the case of Lilly Icos Ltd v Pfizer Ltd (No.2) [2002] WLR 2253, which proceeds on the basis that the provisions of CPR31.22 relate only to documents produced to the other side on disclosure and the subsequent obligations of the other side in relation to those documents.[15]It is easy to see that it will naturally and ordinarily be the party to whom a document has been disclosed which wishes to make wider use of the document and that the party which has disclosed the document will more likely be the party seeking an order restricting or prohibiting its use. However, there is nothing in the wording of the rule which circumscribes who may apply for an order restricting or prohibiting the use of a disclosed document. To the contrary, paragraph 3 expressly states that an application for such an order may be made "by a party". It does not limit the application to the party to whom the document has been disclosed, nor can I see any good reason to imply such a restriction into the rule. In particular, I can see no reason why an application should not be made in an appropriate case by a party to whom a document has been disclosed to seek to restrict the use of that document where the disclosing party has obtained it from a third party, as is the situation here.[16]In any event, even if CPR31.22 were limited in the way that Mr McQuater has submitted, there would in my view remain an inherent jurisdiction in the court to make an order restricting or prohibiting the use of the document where it was necessary in the interests of justice. The existence of such an inherent jurisdiction appears to be expressly recognised in the judgment of Lord Reed in the Supreme Court in the case of A v British Broadcasting Corporation [2015] AC 588 at paragraph 27.[17]There was some debate about the significance or otherwise for the resent application of the proceedings which are pending in Cyprus in which Abacus is seeking the return of the documents which were disclosed and is also seeking to prohibit the use of the documents by the claimants for further purposes. In particular, Mr Oudkerk argued that the English court should not preempt the outcome of the Cyprus proceedings by holding that the documents have entered the public domain in England.[18]For my part I do not consider that the proceedings in Cyprus should affect or influence the question which I have to decide. It seems to me that whether there is or is not a restriction on the use to which the documents may be put which arises under the law of Cyprus and whether, if there is or has been such a restriction, it is affected by the fact that the documents have been referred to at a public hearing here, is not the concern of this court. The only question with which I am concerned is whether the court should make an order which would impose a separate and independent restriction on the use to which the documents disclosed in Cyprus may be put of a kind which would not exist unless this court makes such an order.[19]It is common ground that the starting point from which the application must be approached is the principle of open justice. It is a fundamental principle of the common law, recognised in many authorities, that the legal process should be conducted in public and should be accessible to the public. That includes, in principle, access not only to what is said and read out in open court, but also to evidence which is referred to in open court or read by the judge outside court as part of the process. In principle, all the material which has or may have affected the decision-making process should be open to public scrutiny.[20]Of the many authorities which monstrate this principle it is sufficient to cite as an example the case of A v British Broadcasting Corporation, already mentioned, in which at paragraph 23 Lord Reed said:
"It is a general principle of our constitutional law that justice is administered by the courts in public and is therefore open to public scrutiny."
[21]The principle is not unqualified. In particular, restrictions may be imposed by the court where they are in the interests of justice, or where there is good reason for them, but any such restriction needs to be justified. The presumption is in favour of publicity.[22]Some of the relevant considerations which the court may take into account are helpfully summarised in the case of Lilly Icos Ltd v Pfizer Ltd (No.2), which I also mentioned earlier.

Lord Justice Buxton, who gave the judgment of the Court of Appeal, said at paragraph 25:

"(i) The court should start from the principle that very good reasons are required for departing from the normal rule of publicity … "(ii) When considering an application in respect of a particular document the court should take into account the role that the document has played or will play in the trial and thus its relevance to the process of scrutiny … The court should start from the assumption that all documents in the case are necessary and relevant for that purpose and should not accede to general arguments that it would be possible, or substantially possible, to understand the trial and judge the judge without access to a particular document. However, in particular cases the centrality of the document to the trial is a factor to be placed in the balance. "(iii) In dealing with issues of confidentiality between the parties, the court must have in mind any “chilling” effect of an order upon the interests of third parties … "(iv) Simple assertions of confidentiality and of the damage that will be done by publication, even if supported by both parties, should not prevail. The court will require specific reasons why the party would be damaged by the publication of the document. Those reasons will in appropriate cases be weighed in the light of the considerations referred to in sub-paragraph (ii) above. "(v) It is highly desirable, both in the general public interest and for simple convenience to avoid the holding of trials in private, or partially in private. In the present case, the manner in which the documents were handled, together with the confidentiality agreement during trial, enabled the whole of the trial to be held in public, even though the judge regarded it as justified to retain confidentiality in respect of a significant number of those documents after the trial was over. The court should bear in mind that, if too demanding a standard is imposed under CPR rule 31.22(2) in respect of documents that have been referred to inferentially or in short at the trial, it may be necessary, in order to protect genuine interests of the parties, for more trials or parts of trials to be held in private, or for instance for parts of witness statements or skeletons to be in closed form."
[23]On behalf of Mr Stein, Mr Oudkerk QC submitted that the documents obtained by the claimants from Abacus are self-evidently documents of a confidential nature containing private information in relation to which Abacus, Mr Stein and other parties mentioned in the documents had a reasonable expectation of privacy. In particular, he argued that correspondence with a corporate services provider about financial transactions is inherently confidential information and that the individuals whose financial affairs are mentioned in that correspondence would reasonably expect the information to remain private and not to enter the public domain. He gave as an example of such information references which appear in the documents to bank account numbers and other banking details of particular parties and made the point that publication of such information would be likely to be a matter of serious concern to anyone who knew that their bank details had been put in the public domain.[24]He argued, however, that it is not necessary or reasonable to have to go through each document in order to provide a specific justification of why that document should have its use restricted. The matter can, he submitted, properly be dealt with in a generic way having regard to the nature of the documents disclosed by Abacus.[25]Mr Oudkerk further submitted that the documents in question have been found by Mr Justice Burton to be irrelevant to the claims made in these proceedings and also to be inadmissible. He based that submission on the fact that Mr Justice Burton, in giving summary judgment for the defendant, found that, even if it were true that Mr Stein had lied about the matters which the claimants were relying on the documents to try to establish, that would not provide a legitimate reason for setting aside the judgment against the claimants given in the original proceedings. Mr Justice Burton also found that, because the documents could with reasonable diligence have been obtained earlier, they could not as a matter of law be used in evidence for the purpose of seeking to have the judgment set aside. In those circumstances, where the documents have been held to be irrelevant, Mr Oudkerk argued that there is good reason for the court to make the order placing the limited restriction on their use which the defendant now seeks.[26]Mr Oudkerk further submitted that no legitimate use to which the claimants wish to put the documents has been identified and that there is a real risk, unless the order sought is made, that the documents will be misused by the claimants. In support of the latter submission he relied on the fact that, previous actions of the claimants such as one of the allegations made in these proceedings by the claimants was that Mr Stein had been involved in tax fraud and money laundering. However, those allegations were found by Mr Justice Burton to be completely without foundation. There is reason to fear, Mr Oudkerk argued, that similar spurious allegations might be made, for which an attempt may be made to rely on the documents obtained from Abacus, unless a restriction is imposed on their use.[27]To those arguments Mr McQuater responded, first, that Mr Stein's evidence does not disclose or identify any specific damage which would be caused if use of the documents other than for the purposes of these proceedings is left unrestricted by this court. In particular, he submitted that nothing has been identified in the form of potential harm that would arise that is sufficient to displace the general presumption in favour of publicity and open justice.[28]Secondly, Mr McQuater argued that the documents were and are relevant to an issue in these proceedings, that issue being whether there was at least an arguable case that Mr Stein had lied in the original action, in particular in asserting that he did not own or control Aurdeley. Mr Justice Burton considered that question in his judgment at some length. He concluded that an arguable case to that effect had been shown. True it is that he then went on to hold that the claim seeking to set aside the earlier judgment was bound to fail in any event and accordingly the question of whether Mr Stein had lied or not, or whether there was an arguable case to that effect, did not affect the ultimate result of these proceedings. But it was, Mr McQuater argued, fairly and squarely part of the subject matter of the proceedings and as such is relevant in the sense in which that counts.[29]Mr McQuater further suggested that the object of Mr Stein in making this application may be less a concern for privacy and may rather lie in a wish to suppress access to evidence which has been relied on, and which the claimants may wish again to rely on, to seek to show that Mr Stein was in fact the beneficial owner of Aurdeley.[30]Thirdly, Mr McQuater maintained that a legitimate use of the documents has indeed been identified, being their use for the purpose of the New York proceedings. I mentioned earlier that one of the issues in those proceedings is whether Aurdeley is an alter ego of Mr Stein. The companies which the first claimant controls wish to argue that Aurdeley is or was Mr Stein's alter ego and the documents are potentially relevant to that question.[31]Mr McQuater further submitted that it is nothing more than speculation to suggest that the documents are likely to be misused by the claimants, or used for any illegitimate purpose.[32]There is a feature of the claimants' position which I find unattractive. Having failed in their defence of the original claim, they went off to Cyprus and got hold of documents from Abacus which they then sought to use to mount an attack on the judgment and to argue that the judgment had been obtained by fraud. They obtained the documents in order to pursue that purpose. That attack has failed. Nevertheless, the claimants now say that they should be able to benefit from that failed attack by being allowed to use documents which were disclosed for the purpose of it for any other purpose that they choose and that they should be allowed to do so because they themselves have referred to the documents and referred the judge to the documents at a hearing in the proceedings which took place in public. There is, as it seems to me, a certain bootstraps element to their position.[33]Nevertheless, I remind myself that this is not an application by the claimants for permission to use documents for a purpose which is not currently permitted. That question is one for the Cyprus court. It is an application by the defendant to impose a restriction on the use of documents in addition to any restriction which may already exist under the law of Cyprus.[34]I also remind myself that the principle of open justice does not exist for the benefit of the claimants, or of parties to the litigation; it exists in the public interest. Any restriction on the use of documents which have been referred to in public has to be justified and I have not been persuaded that any sufficient reason for the restriction which the defendant seeks has been shown.[35]Mr Justice Burton has in his judgment in these proceedings discussed at some length documents disclosed by Abacus. He has quoted from some of them and referred to the contents of others. Simply saying that the documents are of a kind that the parties to them would generally regard as confidential and private is not, in my view, a sufficient reason for the court to impose on the use of the documents a restriction which would not otherwise exist.[36]There has been some dispute in the course of argument about the significance or otherwise of the fact that Mr Stein did not apply at the time of the summary judgment hearing for any order restricting the use of the documents. The claimants have argued that the delay in applying for such an order and the fact that no application for such an order was made at the time of the summary judgment hearing indicates that there is no true concern about the confidentiality of the documents. For his part, Mr Oudkerk on behalf of Mr Stein responds that there was not thought at that time to be a risk that any use would be made of the documents beyond these proceedings. He further submitted that the lapse of time before making the application is not a bar to granting it and indeed is, he suggested, a positive factor in favour of the defendant. Any need that there may have been to understand what was happening in the proceedings at the time the argument was taking place in court has now passed. Anyone interested now in finding out what happened can, Mr Oudkerk suggested, get all that they reasonably need to know from reading Mr Justice Burton's judgment and there is no need to seek to inspect the underlying documents.[37]It seems to me that it is a useful test to ask what the position would have been if an application had been made at the time of the summary judgment hearing to keep confidential the documents which had been obtained from Abacus. I can well see that there would have been a case for protecting information in those documents which disclosed, for example, banking details and other similar information relating to third parties.[38]I cannot see, however, that any case could reasonably have been made for restricting in their entirety the use of the documents on which the claimants were seeking to rely to these proceedings and keeping the entirety of that information confidential; nor do I accept that the passage of time since then can be said to put the defendant in a stronger position. It seems to me most desirable that, if a party wishes the court to restrict the use of documents which are being or are about to be referred to at a hearing taking place in public, that question should be addressed at the time so that everyone knows where they stand in relation to the use of the documents.[39]I accept that there is no legal bar to the court making an order at a later date and that in an appropriate case the court will do so. The extent of any publicity which there has been in relation to the documents in the meantime will be one relevant factor. But I do not accept that an applicant who applies after the event, particularly long after the event, for an order restricting the use of documents which have already been referred to a a public hearing will in principle have an easier task by reason of that delay. It would in my view be wrong to give any encouragement to the making of applications a year after proceedings have closed, put on the basis that because the matter is now historic it is appropriate to introduce a restriction which has not previously been sought. To the contrary, it seems to me that the general approach should be that the older and staler the information, the less reason there is, other things being equal, to impose any restriction on its use.[40]The defendant has not, in making this application, sought to differentiate between different sub-categories of the Abacus documents and to advance an alternative case which applies to some of the documents but not to others. I have only indeed seen a handful of the documents and most of the documents I have not even read.[41]It does, however, seem to me that there is a discrete and legitimate point about the confidentiality of bank details which parties can reasonably expect to be kept private and to remain private, notwithstanding that a document containing such details might have been referred to at a public hearing. I can see no possible legitimate interest in the publication of information of that kind and I will therefore make an order, the precise terms of which can be discussed, prohibiting the use of such information. Other than in that limited respect, however, I conclude that the defendant has not displaced the principle of open justice and, save to that extent, the application accordingly fails.

Cited in 2 later judgments